ImageMounting cost pressures, a vast pool of talented scientists in other nations around the world and increasingly abundant opportunities for collaboration with other companies in emerging markets have spurred Western pharmaceutical companies to shift much of the manufacturing operations and clinical-trial work to India and China.

Yet, according to a report issued recently by the Kansas City-based Ewing Marion Kauffman Foundation on the globalization of the pharmaceutical industry, many of the largest, U.S.-based drug and consumer-products companies, including Merck & Co. Inc., Eli Lilly & Co. and Johnson & Johnson Inc., are now counting on the two Asian countries for advanced research and development, as well.

The study, titled “The Globalization of Innovation: Pharmaceuticals – Can India and China Cure the Global Pharmaceutical Market?” reports that Indian and Chinese scientists are rapidly developing the ability to innovate and create their own intellectual property as a result of Western companies shifting their research and development operations to the two countries. In fact, several non-Indian firms with business units in India and China are performing advanced discovery and have begun to move into the “highest-value segments of the pharmaceutical global value chain,” according to the study.

“Globalization is happening faster than people think. Having India and China conduct such sophisticated research and participate in drug discovery was unimaginable even five years ago,” report author Vivek Wadhwa, an executive in residence and adjunct professor Duke University’s Pratt School of Engineering, and a fellow at the Labor and Worklife Program of Harvard Law School, said in a statement. “The challenge is for America to understand this trend and realize the potential of globalization.”

In 2006, 5.5 percent of all global pharmaceutical patent applications named one inventor or more located in India, and 8.4 percent named one or more located in China, according to Wadhwa, who led the team of researchers in the study. These figures reflected a four-fold increase since 1995.

Through detailed interviews with executives of 16 pharmaceutical firms in China and India on their business models, partnerships and technology capabilities, the researchers found that:

  • Indian and Chinese companies are making strides in the most lucrative segments of the industry. In less lucrative segments, such as preclinical testing, animal experimentation and manufacturing, Chinese firms appear to be more numerous.
  •  India is regarded as a more mature market for chemistry and drug-discovery activities than China.
  •  Domestic Indian and Chinese firms rarely have the capital and the regulatory expertise to develop a drug beyond second-phase clinical trials. Their commercial development of new intellectual property therefore necessitates relationships with major multinational corporations.

Because subcontinent-based drug companies have considerable experience in manufacturing generic drugs that meet the U.S. Food & Drug Administration’s rigid standards, India’s role in early drug discovery has increased substantially in recent years – a trend that the researchers attribute to the country’s vast population, which is approaching 1.2 billion people. “The large populations of India and China make both countries exceptional markets for low-cost generic drugs, and domestic companies that have succeeded in marketing them in volume are using the proceeds to fund drug research and development,” the report states. “These activities most often take the form of either internal development of precedented drugs or development of the drugs’ intellectual property through partnership with a multinational [corporation].”

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